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Gateway demurrage

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Demurrage is a negative interest rate on assets held that represents the cost of holding those assets. Ripple supports demurrage by tracking it as an aspect of non-XRP currencies: in other words, there are variants of curencies that are defined by their demurrage rates. A gateway that wants to charge demurrage for holding assets (such as gold) can issue a custom currency representing that asset with the demurrage rate built-in. This is reflected in a different hex representation for the demurraging currency. Client applications should represent a demurraging currency by displaying a negative annual percentage rate along with the currency code. For example: "XAU (-0.5%pa)".

Dealing with Demurraging Currencies

The rippled server, and consequently the official global ledger, do not track changes in value due to demurrage in the balance of funds. This allows demurrage costs to be applied continuously, instead of operating on fixed intervals. It also prevents demurrage from inflicting significant additional computational and storage load for servers that are part of the network. Instead, the fact that particular holdings are subject to demurrage is tracked in the ledger by virtue of the custom currency codes. Demurrage is calculated on the entire currency as if it were interest, according to the following formula:

D = A * ( e ^ (t/ τ) )


  • D is the amount after demurrage
  • A is the pre-demurrage amount as recorded in the global ledger
  • e is Euler's number
  • t is the number of seconds since the Ripple Epoch (0:00 on January 1, 2000 UTC)
  • τ is the e-folding time in seconds. This value is calculated from the desired interest rate.

You can think of demurrage in the Ripple Network as similar to inflation, where the value of all assets affected by it decreases over time, but the ledger always holds amounts in year-2000 values. (This representation was chosen as a simplification of the more complicated representation where individual holdings could track when the demurrage on them started accruing, because this way it becomes easier to recognize, exchange, and represent assets with demurrage applied.) Keep in mind, this does not reflect actual, real-world inflation: instead, it's hypothetical inflation at a constant rate.

Calculating e-folding time

It is simple to calculate from a targeted demurrage rate in annual percent to get a τ value to use in calculating demurrage:

  1. First, subtract the demurrage percentage rate from 100% to get the percentage of initial amount that remains after annual demurrage. Represent it as a decimal. For example, for 0.5% annual interest, you would get 0.995
  2. Now, take the natural log of that number. For example, ln(0.995). For traditional demurrage (decrease in value over time), this value will be negative.
  3. Finally, take the number of seconds in one year (31536000) and divide by the result of the natural log operation. The result is your e-folding time in seconds, for example -6291418827.045599

If you're curious: Since an e-folding amount represents how long until an investment increases e times, a negative interest rate means that the investment would have been worth e times its value that amount of time in the past. Alternatively, it means that after that amount of seconds, the investment will be worth 1/e of what it used to be.

Canonical Calculations

For purposes of calculating demurrage consistently across applications, the precision used is important. Our canonical source of demurrage calculations is ripple-lib. By following these specifications, you should be able to reproduce the demurrage results from ripple-lib exactly:

First, recall the canonical formula for demurrage:

D = A * ( e ^ (t/ τ) )

where D is the post-demurrage amount, and A is the pre-demurrage amount. For the remainder of the formula, e ^ (t/ τ), we call this the "demurrage coefficient". The demurrage coefficient is always relative to a specific time, such that demurrage is calculated for the period starting at the beginning of the Ripple Epoch (00:00:00 January 1, 2000)

The two directional calculations can therefore be simplified to:

  1. Find the demurrage coefficient for the reference time
  2. Apply it to the amount to convert
    1. To convert ledger values to display values, multiply by the demurrage coefficient
    2. To convert display values to ledger values, divide by the demurrage coefficient
  3. Make sure that the converted value can be represented to the desired accuracy. For example, ledger values submitted to Ripple must fit in Ripple's internal format.

For more information on the necessary precision:

The demurrage coefficient should be calculated entirely in 64-bit IEEE754 doubles, such as the number types native to Javascript, or the float type available in Python. However, there are some additional notes:

  • For purposes of demurrage, one year is defined as exactly 31536000 seconds. This is exactly 365 days, with no adjustments for leap days or leap seconds.
  • The reference time should be specified in seconds, as an integer. If your clock provides a higher resolution, you should truncate the reference time used.

Client Applications

In order to accurately convey amounts in present-day terms, client applications must adjust for demurrage. This means a few things:

  • When representing the value of a demurraging currency, the display value should be adjusted to the "post-demurrage" values. (This generally means that display values will be lower than the ledger values.)
  • When making offers or transactions in a demurraging currency, amounts entered by the user should be adjusted upward, to interpret user input as post-demurrage numbers. (This generally means that amounts written into offers are higher than the user input value)

Client applications must also make sure to distinguish between currencies with differing amounts of demurrage, and to display the correct demurrage rates for all currencies with such rates. Currently, the only Ripple Labs-created client that supports demurrage is Ripple Trade.

ripple-lib support

Clients that are built from ripple-lib can pass a reference_date as an option to the Amount.from_human function to account for demurrage. This function can automatically convert a human-input number to the necessary amount to hold on the ledger to represent that value in at a given time. (The amount that is sent to the rippled server is the hypothetical amount one would have needed in order to have the desired amount after enduring constant demurrage since the Ripple Epoch.)

For example, if you're using javascript, you can use ripple-lib utility to calculate this manually:

// create an Amount object for an amount of the demurring currency, in this case 10
// pass in a reference_date that represents today, 
// which will calculate how much you will need to represent the requested amount for today
var demAmount = Amount.from_human('10 0158415500000000C1F76FF6ECB0BAC600000000', {reference_date:459990264});

// set the issuer

// get the json format that can be used as TakerPays or TakerGets in the order creation

// this will output an Amount with ~10.75 as the value for XAU, which is what is needed to create an
// effective order today for 10 XAU

To calculate how much a given amount has demurred up to today:

// create a new Amount object
var demAmount = Amount.from_json('10/015841551A748AD2C1F76FF6ECB0CCCD00000000/rHb9CJAWyB4rj91VRWn96DkukG4bwdtyTh');

// apply interest

demAmount = demAmount.applyInterest(new Date());


get the current amount:

Where Does Demurrage Go?

To put it simply, the value that depreciates due to demurrage becomes the property of the gateway issuing the currency. This means that, when someone holding a balance of currency goes to redeem that currency from the Gateway, the amount they get is the post-demurrage amount (the "display amount") relative to the current moment in time.

Note that, when the Gateway issues currency with demurrage, it must also adjust the values it issues, so that the amount sent to the rippled server and written in the ledger is already adjusted for demurrage up to the point in time it was issued.

Demurrage and Money-Making Offers

Demurrage ensures that particular currencies "drift" in value slowly over time, so that the same amount on the ledger is worth increasingly less over time when redeemed. (A balance will never go negative, but it will get closer and closer to zero value.) However, offers are not automatically updated to compensate for demurrage that accumulated in the time since the offer was made. This means that, if you are making an offer to buy a demurraging currency, you must occasionally adjust your offer to ask for higher ledger amounts to get the same post-demurrage actual value. However, we expect this to be a complete non-issue because the relative value of currencies (especially pseudo-currency commodities such as precious metals) fluctuates much faster than typical rates of demurrage.

Since Ripple client applications already adjust for demurrage when taking human inputs to make an offer, most users will not have to do anything different when making offers.

Currency Format Details

Currency with demurrage or interest is represented as a 160-bit value that begins with the value 0x01. This sets it apart from hashes (which are always 0x80 or higher) as well as standard currency (0x00) and other currency types we may define in the future (0x02-0x7F). Demurraging currency has the following format:

01 __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
   CURCODE- DATE------- RATE------------------- RESERVED---
  • CURCODE is the 3-byte currency code, such as "USD"
  • DATE is no longer used, and should always be 0.
  • RATE is the e-folding time, formatted as an IEEE Double, represented in hex. For example, -6291418827.045599 becomes "C1F76FF6ECB0BAC6".
  • RESERVED is reserved for future use. It should always be given as 0, but other values should be accepted for forward-compatibility.